<PAGE>
Managed Municipals
Portfolio II Inc.
Annual Report
August 31, 2000
<PAGE>
Managed Municipals
Portfolio II Inc.
Dear Shareholder:
We are pleased to provide the annual report for the Managed Municipals
Portfolio II Inc. ("Fund") for the year ended August 31, 2000. During the 12
months covered by this report, the Fund distributed income dividends totaling
$0.60 per share. The table below shows the annualized distribution rate and 12-
month total return based on the Fund's August 31, 2000 net asset value ("NAV")
per share and its New York Stock Exchange ("NYSE") closing price.(1)
Price Annualized 12-Month
Per Share Distribution Rate(2) Total Return(2)
-------------- -------------------- ---------------
$11.51 (NAV) 5.21% 8.49%
$9.938 (NYSE) 6.04% 5.21%
In comparison, the Lipper Inc. (Lipper)(3) peer group of general closed-end
municipal bond funds returned 5.65% based on NAV for the same period.
---------
1 The NAV is calculated by subtracting total liabilities from the closing
value of all securities held by the Fund (plus all other assets) and
dividing the result (total net assets) by the total number of shares
outstanding. The NAV fluctuates with the changes in the value of the
securities in which the Fund has invested. However, the price at which an
investor may buy or sell shares of the Fund is at their market (NYSE) price
as determined by supply and demand.
2 Total returns are based on changes in NAV or the market value,
respectively. Total returns assume the reinvestment of all dividends and/or
capital gains distributions in additional shares. The annualized
distribution rate is the Fund's current monthly income dividend rate,
annualized, and then divided by the NAV or the market value noted in this
report. The annualized distribution rate assumes a current monthly income
dividend rate of $0.05 for 12 months. This rate is as of September 30, 2000
and is subject to change. The important difference between a total return
and an annualized distribution rate is that the total return takes into
consideration a number of factors, including the fluctuation of the NAV or
the market value during the period reported. The NAV fluctuation includes
the effects of unrealized appreciation or depreciation in the Fund.
Accordingly, since an annualized distribution rate only reflects the
current monthly income dividend rate annualized, it should not be used as
the sole indicator to judge the return you receive from your Fund
investment. Past performance is not indicative of future results.
3 Lipper is an independent mutual fund-tracking organization.
1
<PAGE>
Special Shareholder Notice
The Fund continued to repurchase (and retire) shares during the period. We
believe that the share repurchase program that started on July 27, 1999, has
been an opportunity to take advantage of market price fluctuations with the
objective of offering increased value to the Funds shareholders. The Fund
intends to continue to purchase and then retire shares of its stock in the open
market at such times, prices and amounts deemed advisable.
The Fund's share repurchase program has also added liquidity to the market
for the benefit of investors who wish to sell their shares, while also seeking
to benefit current shareholders by increasing the Fund's shares' NAV. Since the
inception of the program, the Fund has repurchased (and retired) 978,400 shares
with an average buyback price of $9.407. As of August 31, 2000, this repurchase
program has increased the Fund's shares' NAV by over $0.15 and increased the
Fund's shares' total return by approximately 1.39% when measured by NAV.
Municipal Bond Market Update
The municipal bond market had little reaction to the Federal Reserve
Board's ("Feds") decision to keep interest rates steady or to its view that risk
in the economy is weighted toward inflation. In our view, the bond market is
still pricing in anticipation of any possible Fed tightening by the end of the
year. However, we expect monetary policy to remain steady throughout 2000 and we
would not be surprised if the Fed were to shift to a more neutral stance before
the end of the year.
We also believe the Fed is likely to remain apolitical as the 2000
Presidential election nears, especially since we are approaching an election
involving a change in administration. A critical point, which is often
overlooked by many investors, is that Fed monetary policy adjustments often take
time to be absorbed into the general economy. The Fed has tightened 175 basis
points(4)since June 1999 and the recent rallies we have seen in the bond market
are a result of changes enacted since the Fed began raising interest rates.
Since the last Fed tightening on May 16, 2000, most sectors of the bond
market have begun to improve relative to U.S. Treasuries, following the recent
ascent of their yields to high relative levels. While the decline in yields may
mean that bargains in the market may be more difficult to find,
------------
4 A basis point is 0.01% or one one-hundredth of a percent.
2
<PAGE>
the good news is that bond performance for the most part has improved -- and
with improved performance, we have seen better market psychology, which in turn
may reduce risks going forward. (Of course, no guarantees can be given that our
expectations will be met.)
After accelerating sharply through the early months of 2000, global
economic growth appears to be peaking. Interest rate increases by the Fed have
moderated the U.S. expansion, but the tightening cycle may not be complete. Fed
Chairman Alan Greenspan has stated openly that he doubts whether economic growth
needs to slow markedly below potential in order to keep inflation low, but the
matter remains a key subject of debate at the Fed. In any case, among bond
market pundits, news of an economic slowdown typically calms fears of rising
inflation and fosters positive feelings regarding the future direction of bond
prices.
In addition, a vibrant national economy has produced large cash surpluses
in many states and municipalities, causing general improvement in the credit
quality of municipal securities and giving some additional comfort to investors
regarding the creditworthiness of securities they own.
Under current market conditions, demand for bonds is fairly constant, so
reduced supply provides support to market prices. As a result, during these
times of rapid interest rate movements, much of the price volatility experienced
in other areas of the bond market, and which many investors find so unsettling,
is smoothed in the municipal bond market.
Municipal bond prices in general have been very firm lately: since late
May, a triple 'A' ten-year municipal index has experienced price improvement
(and yield decline) of 50 basis points or more. Demand in the municipal bond
market has been steady to increasing as recent volatility in the stock market
has undoubtedly led some investors to rethink their portfolio mix, and to
establish or augment their bond positions.
Investment Strategy
The Fund seeks as high a level of current income exempt from Federal income
tax as is consistent with preservation of principal./5/ The Fund invests
primarily in long-term, investment-grade/6/ municipal debt securities issued by
state and local governments, political subdivisions, agencies and public
authorities.
-------------
5 Please note that a portion of the Funds income may be subject to the
Alternative Minimum Tax ("AMT").
6 Investment-grade bonds are those rated Aaa, Aa, A and Baa by Moody's
Investors Service, Inc. or AAA, AA, A and BBB by Standard & Poor's Ratings
Service, or that have an equivalent rating by any nationally recognized
statistical rating organization, or are determined by the manager to be of
equivalent quality.
3
<PAGE>
During the past year, the Fund focused on transportation bonds (20%),
hospital bonds (13%) and general obligation bonds (11%) because we believed
these sectors offered good relative values. In addition, as of August 31, 2000,
89.1% of the Fund's holdings were rated investment-grade, with 37.5% of the Fund
invested in AAA/Aaa bonds, the highest possible rating.
In our view, the municipal bond market has provided us with excellent
opportunities during the reporting period. Since interest rates have gone up to
higher levels, we have added discounted high-quality bonds at the long end of
the yield curve,/7/ enabling us to invest our excess cash at higher yields.
The Funds investment strategy going forward will be three fold:
. To lengthen maturities in the Fund to take advantage of the
inexpensive valuations of municipal bonds relative to U.S.
Treasuries;
. To focus on investing in high-grade issues; and
. To invest in discount paper, as this is where we believe we can
obtain the best values.
Another goal is to sell off some of our shorter-term maturities that were
defensive and stretch out longer on the yield curve. We see the best opportunity
for potential reward right now at the long end of the yield curve.
Municipal Bond Market Outlook
We believe that demand for municipal bonds may remain strong based on
economic issues related to the political campaign. One of the main topics is how
the various candidates would spend the significant federal government surplus.
The Congressional Budget Offices baseline projections show surpluses rising from
$232 billion in 2000 to $685 billion in 2010. The total budget surplus over ten
years is projected to be about $4.6 trillion.
---------
7 The yield curve is the graphical depiction of the relationship between the
yield on bonds of the same credit quality but different maturities.
4
<PAGE>
In our opinion, a number of factors bode well for the municipal bond
market. The new issue market is expected to shrink this year, boosting demand
for bonds currently outstanding and enhancing interest for the roughly $175
billion of new municipal bonds expected to be issued in 2000. Given the thinly
traded market and lack of liquidity that currently exist, we believe that any
positive catalyst, such as an increase in issue volume, could give the market
much-needed momentum.
Fiscal trends are another major positive. During past economic downturns,
some municipal issuers facing declining tax receipts were hard-pressed to repay
their bond obligations. Today, many state and local governments boast budget
surpluses. We believe these surpluses indicate that some investors may feel more
comfortable owning municipal bonds, even in a downturn. And lastly, recent
narrowing of spreads in the taxable market has made other fixed income
alternatives less attractive. All of these trends help to explain why we remain
optimistic about the prospects for the municipal bond market in the months
ahead.
Thank you for investing in the Managed Municipals Portfolio II Inc. We look
forward to continuing to help you pursue your financial goals in the future.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman Vice President and
Investment Officer
September 11, 2000
5
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Take Advantage of the Fund's Dividend Reinvestment Plan!
Did you know that Fund investors who reinvest their dividends are taking
advantage of one of the most effective wealth-building tools available today?
Systematic investments put time to work for you through the strength of
compounding.
As an investor in the Fund, you can participate in its Dividend Reinvestment
Plan ("Plan"), a convenient, simple and efficient way to reinvest your dividends
and capital gains, if any, in additional shares of the Fund. Below is a short
summary of how the Plan works.
Plan Summary
If you are a Plan participant who has not elected to receive your dividends in
the form of a cash payment, then your dividend and capital gain distributions
will be reinvested automatically in additional shares of the Fund.
The number of common stock shares in the Fund you will receive in lieu of a cash
dividend is determined in the following manner. If the market price of the
common stock is equal to or exceeds the net asset value per share ("NAV") on the
determination date, you will be issued shares by the Fund at a price reflecting
the NAV, or 95% of the market price, whichever is greater.
If the market price is less than the NAV at the time of valuation (the close of
business on the determination date), or if the Fund declares a dividend or
capital gains distribution payable only in cash, PFPC Global Fund Services
("Plan Agent"), will buy common stock for your account in the open market.
If the Plan Agent begins to purchase additional shares in the open market and
the market price of the shares subsequently rises above the previously
determined NAV before the purchases are completed, the Plan Agent will attempt
to terminate purchases and have the Fund issue the remaining dividend or
distribution in shares at the greater of the previously determined NAV or 95% of
the market price. In that case, the number of Fund shares you receive will be
based on the weighted average of prices paid for shares purchased in the open
market and the price at which the Fund issues the remaining shares.
A more complete description of the current Plan appears beginning on page 26. To
find out more detailed information about the Plan and about how you can
participate, please call PFPC Global Fund Services at (800) 331-1710.
6
<PAGE>
Schedule of Investments
August 31, 2000
Face
Amount Rating(a) Security Value
================================================================================
Alabama -- 1.0%
$ 1,270,000 AAA Jefferson County, AL Sewer Revenue,
Capital Improvements, FGIC-Insured,
Series A, 5.375% due 2/1/36 $ 1,214,438
--------------------------------------------------------------------------------
Alaska -- 2.5%
2,895,000 A2* Alaska Industrial Development & Export
Authority Revolving Fund, Series A,
6.500% due 4/1/14 (b) 3,007,181
--------------------------------------------------------------------------------
California -- 3.7%
2,500,000 Ba1* California Educational Facilities Authority
Revenue, (Pooled College & University
Projects), Series A, 5.625% due 7/1/23 2,321,875
2,000,000 A2* California Health Facilities, Cedar Sinai
Medical Center, Series A, 6.250%
due 12/1/34 2,045,000
--------------------------------------------------------------------------------
4,366,875
--------------------------------------------------------------------------------
Colorado -- 19.7%
1,000,000 AAA Arapahoe County, CO Capital Improvement
Trust Fund, E-470 Public Highway
Authority Revenue, (Pre-Refunded--
Escrowed with U.S. government securities
to 8/31/05 Call @ 103), 7.000%
due 8/31/26 1,136,250
1,000,000 A- Aspen, CO Sales Tax Revenue, Series A,
5.400% due 11/1/19 966,250
Colorado Health Facilities Authority Revenue:
1,000,000 AA- Series A, 5.000% due 12/1/28 866,250
1,000,000 A Series B, Remarketed 7/8/98, 5.350%
due 8/1/15 943,750
4,000,000 BBB+ Colorado Springs, CO Airport Revenue,
Series A, 7.000% due 1/1/22 (b) 4,135,000
30,000,000 Aaa* Dawson Ridge, CO Metropolitan District
No. 1, Series A, (Escrowed to Maturity
with REFCO Strips), zero coupon bond
to yield 5.213% due 10/1/22 7,200,000
Denver, CO City & County:
Airport Revenue, Series C:
3,465,000 A 6.125% due 11/15/25 (b) 3,711,881
See Notes to
Financial Statements.
7
<PAGE>
Schedule of Investments
August 31, 2000 (continued)
Face
Amount Rating(a) Security Value
================================================================================
Colorado -- 19.7% (continued)
$ 2,785,000 A Partially Escrowed to maturity with
U.S. government securities, 6.125%
due 11/15/25 (b)(c) $ 2,983,431
1,000,000 AAA COP, Series B, AMBAC-Insured,
5.500% due 12/1/25 (b) 990,000
--------------------------------------------------------------------------------
22,932,812
--------------------------------------------------------------------------------
Florida -- 5.0%
1,500,000 BBB- Martin County, FL IDA, (Indiantown
Cogeneration Project), Series A, 7.875%
due 12/15/25 (b) 1,530,000
4,000,000 NR Tampa, FL Revenue, (Florida Aquarium Inc.
Project), (Pre-Refunded Escrowed with
U.S. government securities to 5/1/02
Call @ 102), 7.750% due 5/1/27 (c) 4,285,000
--------------------------------------------------------------------------------
5,815,000
--------------------------------------------------------------------------------
Georgia -- 1.8%
1,000,000 A3* Private Colleges & Universities Authority
Revenue, (Mercer University Project),
Series A, 5.375% due 10/1/29 932,500
1,000,000 BBB- Savannah, GA EDA Revenue, (College of
Art & Design Inc. Project), Series A,
6.900% due 10/1/29 1,045,000
100,000 VMIG 1* Monroe County, GA Development Authority,
PCR, 4.300% due 4/1/32 (d) 100,000
--------------------------------------------------------------------------------
2,077,500
--------------------------------------------------------------------------------
Hawaii -- 3.2%
2,000,000 A Hawaii State Department of Budget & Finance,
Special Purpose Revenue, Kaiser Permanente,
Series A, 5.100% due 3/1/14 1,852,500
2,000,000 AAA Hawaii State GO, Series CP, FGIC-Insured,
5.000% due 10/1/16 1,932,500
--------------------------------------------------------------------------------
3,785,000
--------------------------------------------------------------------------------
Illinois -- 0.8%
1,000,000 Aaa* Illinois HFA, Memorial Health System,
MBIA-Insured, 5.250% due 10/1/18 960,000
--------------------------------------------------------------------------------
Iowa -- 1.3%
1,500,000 AA- Dawson, IA IDR, (Cargill Inc. Project),
6.500% due 7/15/12 1,560,000
--------------------------------------------------------------------------------
See Notes to
Financial Statements.
8
<PAGE>
Schedule of Investments
August 31, 2000 (continued)
Face
Amount Rating(a) Security Value
================================================================================
Maryland -- 0.3%
$ 4,000,000 NR Maryland State Energy Financing
Administration, Solid Waste Disposal
Revenue, (Hagerstown Recycling Project),
9.000% due 10/15/16 (b)(e) $ 360,000
--------------------------------------------------------------------------------
Massachusetts -- 5.2%
1,000,000 Aaa* Massachusetts State College Building
Authority Revenue, Series 1, MBIA-Insured,
5.375% due 5/1/39 951,250
1,000,000 AAA Massachusetts State Health & Educational
Facilities Authority Revenue, Northeastern
University, Series I, MBIA-Insured, 5.000%
due 10/1/29 902,500
1,000,000 AAA Massachusetts State HFA, Housing
Development, Series B, MBIA-Insured,
5.300% due 12/1/17 986,250
2,000,000 AAA Massachusetts State Turnpike Authority,
Metropolitan Highway System Revenue,
Sub. Series A, AMBAC-Insured, 4.750%
due 1/1/34 1,722,500
510,000 AAA Massachusetts State Water Resource
Authority, MBIA-Insured, Series C,
5.250% due 12/1/20 492,788
1,000,000 AA Massachusetts Bay Transportation
Authority, Sale Taxes Revenue, Series A,
5.500% due 7/1/30 983,750
--------------------------------------------------------------------------------
6,039,038
--------------------------------------------------------------------------------
Michigan -- 4.8%
4,000,000 NR Michigan State Strategic Fund Resource
Recovery, Limited Obligation Revenue,
Central Wayne Energy Recovery L.P.,
Series A, 7.000% due 7/1/27 (b) 3,645,000
2,000,000 AAA Michigan State COP, AMBAC-Insured,
5.500% due 6/1/27 1,977,500
--------------------------------------------------------------------------------
5,622,500
--------------------------------------------------------------------------------
Minnesota -- 0.8%
1,000,000 AAA Minneapolis & Saint Paul, MN Community
Airport Revenue, Series A, FGIC-Insured,
5.125% due 1/1/25 942,500
--------------------------------------------------------------------------------
See Notes to
Financial Statements.
9
<PAGE>
Schedule of Investments
August 31, 2000 (continued)
Face
Amount Rating(a) Security Value
================================================================================
Montana -- 1.7%
$ 2,000,000 NR Montana State Board of Investment Resource
Recovery Revenue, (Yellowstone Energy
L.P. Project), 7.000% due 12/31/19 (b) $ 1,935,000
--------------------------------------------------------------------------------
Nevada -- 4.2%
4,650,000 Baa2* Clark County, NV IDR, Southwest Gas
Corp., Series B, 7.500% due 9/1/32 (b) 4,865,062
--------------------------------------------------------------------------------
New Jersey -- 2.5%
3,000,000 A New Jersey Health Care Facilities Finance
Authority Revenue, Robert Wood Johnson
University Hospital, 5.700% due 7/1/20 2,970,000
--------------------------------------------------------------------------------
New Mexico -- 0.9%
1,085,000 AAA New Mexico Mortgage Financing Authority,
Single-Family Mortgages, Series D-3,
5.625% due 9/1/28 1,078,219
--------------------------------------------------------------------------------
New York -- 6.8%
2,000,000 AAA Nassau Health Care Corp., New York Health
System Revenue, Nassau County Guaranteed,
FSA-Insured, Series A, 5.500% due 8/1/19 1,982,500
2,000,000 AA New York, NY Transitional Finance
Authority Revenue, Future Tax Secured,
Series C, 5.500% due 11/1/29 1,967,500
3,000,000 AAA New York State Thruway Authority,
Highway & Bridge Transportation Fund,
FGIC-Insured, Series A, 5.000% due 4/1/18 2,820,000
1,150,000 AAA New York State Dormitory Authority
Revenue, St. John's University,
MBIA-Insured, 5.250% due 7/1/25 1,096,812
--------------------------------------------------------------------------------
7,866,812
--------------------------------------------------------------------------------
North Carolina -- 1.4%
1,500,000 A3* Coastal Regional Solid Waste Management
Disposal Authority, Solid Waste Disposal
Revenue, 6.500% due 6/1/08 1,580,625
--------------------------------------------------------------------------------
Ohio -- 2.5%
1,000,000 AAA Cuyahoga County, OH Hospital Revenue,
AMBAC-Insured, 5.500% due 1/15/30 978,750
1,990,000 AAA Lucas County, OH Hospital Revenue,
Promedia Healthcare Obligation Group,
AMBAC-Insured, 5.375% due 11/15/29 1,912,887
--------------------------------------------------------------------------------
2,891,637
--------------------------------------------------------------------------------
See Notes to
Financial Statements.
10
<PAGE>
Schedule of Investments
August 31, 2000 (continued)
Face
Amount Rating(a) Security Value
================================================================================
South Carolina -- 4.5%
$ 2,120,000 A3* Myrtle Beach, SC COP, (Myrtle Beach
Convention Center Project),
6.875% due 7/1/07 $ 2,252,500
3,000,000 Aaa* South Carolina Transportation Infrastructure,
Bank Revenue, AMBAC-Insured, Series A,
5.250% due 10/1/21 2,891,250
--------------------------------------------------------------------------------
5,143,750
--------------------------------------------------------------------------------
Texas--16.7%
3,000,000 AAA Aledo, TX ISD, GO, PSFG,
5.000% due 2/15/29 2,707,500
1,000,000 Aaa* Azle, TX ISD, PSFG, Series C,
5.000% due 2/15/22 926,250
2,000,000 A3* Brazos River Authority, PCR, Utility Electric
Co., Series C, 5.550% due 6/1/30 (b) 1,867,500
435,000 Aaa* Burleson, TX ISD, GO, PSFG, 6.750% due 8/1/24 468,169
Dallas-Fort Worth, TX International Airport
Facilities Revenue, American Airlines:
4,000,000 Baa1* 6.375% due 5/1/35 (b) 3,915,000
1,400,000 Baa1* Series A, 5.950% due 5/1/29 (b) 1,408,750
1,000,000 Baa1* Series B, 6.050% due 5/1/29 (b) 1,008,750
1,000,000 AA Harris County, TX Health Facilities
Development Corp., Hospital Revenue,
(Texas Childrens Hospital Project),
5.250% due 10/1/19 926,250
1,000,000 AAA Matagorda County, TX Naval District
Revenue, AMBAC-Insured, Series A,
5.250% due 6/1/26 (b) 948,750
1,830,000 Aa1* Texas State GO, Water Development,
Series D, 5.000% due 8/1/16 1,759,088
1,000,000 AAA Texas Water Development Board Revenue,
State Revolving Fund, Sr. Lien, Series B,
5.000% due 7/15/19 943,750
West Texas Municipal Power Agency
Revenue, MBIA-Insured:
1,520,000 AAA 5.000% due 2/15/16 1,472,500
1,120,000 AAA 5.000% due 2/15/18 1,065,400
--------------------------------------------------------------------------------
19,417,657
--------------------------------------------------------------------------------
See Notes to
Financial Statements.
11
<PAGE>
Schedule of Investments
August 31, 2000 (continued)
Face
Amount Rating(a) Security Value
================================================================================
Virgin Islands -- 0.8%
$ 1,000,000 BBB- Virgin Islands Public Finance Authority
Revenue, Sr. Lien, Series A, 5.500%
due 10/1/22 $ 936,250
--------------------------------------------------------------------------------
Virginia -- 4.0%
Virginia State Housing Development Authority:
Commonwealth Mortgage Revenue:
1,245,000 AA+ Series D, Sub. Series D-3, Remarketed
5/30/96, 5.700% due 7/1/09 1,294,800
2,350,000 AA+ Series F, Sub. Series F-1, Remarketed
9/12/95, 6.400% due 7/1/17 2,435,188
925,000 AA+ Multi-Family Housing Revenue,
Series K, 5.900% due 11/1/11 965,469
--------------------------------------------------------------------------------
4,695,457
--------------------------------------------------------------------------------
Wisconsin -- 3.9%
Wisconsin Housing EDA, Series A:
2,000,000 AA Home Ownership Revenue, 6.450%
due 3/1/17 2,080,000
1,370,000 AA- Housing Revenue, 5.650% due 11/1/23 1,370,000
1,000,000 AAA Wisconsin State Health & Educational
Facilities Authority Revenue, (Medical
College of Wisconsin Project),
MBIA-Insured, 5.400% due 12/1/16 1,003,750
--------------------------------------------------------------------------------
4,453,750
--------------------------------------------------------------------------------
TOTAL INVESTMENTS 100%
(Cost -- $117,632,176**) $ 116,517,063
--------------------------------------------------------------------------------
(a) All ratings are by Standard & Poor's Rating's Service, except those
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) Pre-Refunded bonds escrowed by U.S. government securities and bonds
escrowed to maturity with U.S. government securities are considered by the
investment adviser to be triple-A rated even if issuer has not applied for
new ratings.
(d) Variable rate obligation payable at par on demand at any time on no more
than seven days notice.
(e) Security in default.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 14 and 15 for definitions of ratings and certain security
descriptions.
See Notes to
Financial Statements.
12
<PAGE>
Summary of Investments by Combined Ratings
August 31, 2000 (unaudited)
Percent of
Moody's and/or Standard & Poor's Total Investments
------------------------------------------------------------------
Aaa AAA 37.5%
Aa AA 13.9
A A 21.5
Baa BBB 16.2
Ba BB 2.0
VMIG 1 SP-1 0.1
NR NR 8.8
------
100.0%
======
13
<PAGE>
Bond Ratings
(unaudited)
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"BB" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issue only in a small
degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Aa" to "Ba," where 1 is the highest
and 3 is the lowest ranking within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
14
<PAGE>
Short-Term Security Ratings
(unaudited)
SP-1 -- Standard & Poor's highest rating indicating very strong or strong
capacity to pay principal and interest; those issued determined
possess overwhelming safety characteristics are denoted with a plus
(+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate demand
obligation (VRDO) rating indicating that the degree of safety
regarding timely payment is either overwhelming or very strong; those
issues determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
A-2 -- Standard & Poor's second highest commercial paper and VRDO rating
indicating that the degree of safety regarding timely payment is
either overwhelming or very strong; those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having a demand feature -- VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDO prior to the
advent of the VMIG-1 rating.
Security Descriptions
(unaudited)
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan Insurance
COP -- Certificate of Participation
EDA -- Economic Development Authority
FAIRS -- Floating Adjustable Interest Rate Securities
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
IFA -- Industrial Finance Agency
INFLOS -- Inverse Floaters
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guaranty
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
15
<PAGE>
Statement of Assets and Liabilities
August 31, 2000
================================================================================
ASSETS:
Investments, at value (Cost -- $117,632,176) $116,517,063
Cash 32,115
Interest receivable 1,750,404
Receivable for securities sold 10,000
--------------------------------------------------------------------------------
Total Assets 118,309,582
--------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 138,971
Investment advisory fees payable 38,645
Accrued expenses 116,222
--------------------------------------------------------------------------------
Total Liabilities 293,838
--------------------------------------------------------------------------------
Total Net Assets $118,015,744
================================================================================
NET ASSETS:
Par value of capital shares $ 10,256
Capital paid in excess of par value 125,012,117
Overdistributed net investment income (41,971)
Accumulated net realized loss from security transactions (5,849,545)
Net unrealized depreciation of investments (1,115,113)
--------------------------------------------------------------------------------
Total Net Assets
(Equivalent to $11.51 a share on 10,256,306 shares of $0.001
par value outstanding; 500,000,000 shares authorized) $118,015,744
================================================================================
See Notes to
Financial Statements.
16
<PAGE>
Statement of Operations
Year Ended
August 31, 2000
================================================================================
INVESTMENT INCOME:
Interest $ 7,269,871
--------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 3) 824,222
Administration fees (Note 3) 235,492
Shareholder communications 111,938
Audit and legal 103,398
Directors' fees 38,346
Registration fees 23,184
Shareholder and system servicing fees 21,414
Pricing service fees 9,388
Custody 4,388
Other 10,880
--------------------------------------------------------------------------------
Total Expenses 1,382,650
Less: Investment advisory and administration fee waivers (Note 3) (322,489)
--------------------------------------------------------------------------------
Net Expenses 1,060,161
--------------------------------------------------------------------------------
Net Investment Income 6,209,710
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 4):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 52,404,882
Cost of securities sold 52,719,146
--------------------------------------------------------------------------------
Net Realized Loss (314,264)
--------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of year (1,922,405)
End of year (1,115,113)
--------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 807,292
--------------------------------------------------------------------------------
Net Gain on Investments 493,028
--------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 6,702,738
--------------------------------------------------------------------------------
See Notes to
Financial Statements.
17
<PAGE>
Statements of Changes in Net Assets
Year Ended Year Ended
August 31, 2000 August 31, 1999
================================================================================
OPERATIONS:
Net investment income $ 6,209,710 $ 6,292,028
Net realized loss (314,264) (4,551,659)
(Increase) decrease in net
unrealized depreciation 807,292 (7,010,676)
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations 6,702,738 (5,270,307)
--------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income (6,345,549) (6,088,436)
Net realized gains -- (1,988,543)
--------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (6,345,549) (8,076,979)
--------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Treasury stock acquired (8,955,152) (268,562)
--------------------------------------------------------------------------------
Decrease in Net Assets (8,597,963) (13,615,848)
NET ASSETS:
Beginning of year 126,613,707 140,229,555
--------------------------------------------------------------------------------
End of year* $ 118,015,744 $ 126,613,707
--------------------------------------------------------------------------------
* Includes undistributed (overdistributed)
net investment income of: $ (41,971) $ 93,868
--------------------------------------------------------------------------------
See Notes to
Financial Statements.
18
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Managed Municipals Portfolio II Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities are
valued at the mean between bid and asked prices provided by an independent
pricing service that are based on transactions in municipal obligations,
quotations from municipal bond dealers, market transactions in comparable
securities and various relationships between securities; (c) securities maturing
within 60 days are valued at cost plus accreted discount, or minus amortized
premium, which approximates value; (d) gains or losses on the sale of securities
are calculated by using the specific identification method; (e) interest income,
adjusted for amortization of premium and accretion of original issue discount,
is recorded on an accrual basis; market discount is recognized upon the
disposition of the security; (f) dividends and distributions to shareholders are
recorded on the ex-dividend date; (g) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles; (h) the Fund intends to
comply with the applicable provisions of the Internal Revenue Code of 1986, as
amended, pertaining to regulated investment companies and to make distributions
of taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (i) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy conditions that will enable interest from
municipal securities, which is exempt from regular Federal income tax and from
designated state income taxes, to retain such tax-exempt status when distributed
to the shareholders of the Fund.
Capital gains distributions, if any, are taxable to shareholders, and are
declared and paid at least annually.
19
<PAGE>
Notes to Financial Statements
(continued)
3. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc., acts
as investment adviser to the Fund. The Fund pays SSBC an advisory fee calculated
at an annual rate of 0.70% of the average daily net assets of the Fund. This fee
is calculated daily and paid monthly. For the year ended August 31, 2000, SSBC
waived $250,825 of its investment advisory fee.
SSBC also acts as the Fund's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly. For the year ended August 31, 2000, SSBC
waived $71,664 of its administration fee.
All officers and one Director of the Fund are employees of Salomon Smith
Barney Inc., another subsidiary of SSBH.
4. Investments
For the year ended August 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ 43,453,174
--------------------------------------------------------------------------------
Sales 52,404,882
================================================================================
At August 31, 2000, aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 4,044,204
Gross unrealized depreciation (5,159,317)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (1,115,113)
================================================================================
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are
recognized as assets. Securities equal to the initial margin amount are
segregated by the custodian in the name of the broker. Additional securities are
also segregated up to the current market value of the futures contracts. During
the period the futures contract is open, changes in the value of the contract
are recognized as unrealized gains or losses by "marking-to-market" on a daily
basis to reflect the market value of the contract at the end of each
20
<PAGE>
Notes to Financial Statements
(continued)
day's trading. Variation margin payments are made or received and recognized as
assets due from or liabilities due to broker, depending upon whether unrealized
gains or losses are incurred. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio.
The Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At August 31, 2000, the Fund had no open futures contracts.
6. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires continual maintenance
of the market value (plus accrued interest) of the collateral in amounts at
least equal to the repurchase price.
7. Capital Shares
At August 31, 2000, the Fund had 500,000,000 shares of common stock
authorized with a par value of $0.001.
On July 27, 1999, the Fund commenced a share repurchase plan. Since
inception of the share repurchase plan, the Fund has repurchased (and retired)
978,400 shares with a total cost of $9,223,714. During the year ended August 31,
2000, the Fund repurchased 951,200 shares with a total cost of $8,955,152.
8. Capital Loss Carryforwards
At August 31, 2000, the Fund had, for Federal income tax purposes,
approximately $5,828,000 of capital loss carryforwards available to offset
future capital gains. To the extent that these carryforward losses are used to
offset capital gains, it is probable that the gains so offset will not be
distributed. The amount and expiration of the carryforwards are indicated below.
Expiration occurs on August 31 of the year indicated:
2007 2008
================================================================================
Carryforward Amounts $973,000 $4,855,000
================================================================================
21
<PAGE>
Financial Highlights
For a share of capital stock outstanding throughout each year ended August 31,
except where noted:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
==============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $11.30 $12.48 $12.15 $11.98 $12.36
--------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(1)/ 0.59 0.56 0.55 0.63 0.66
Net realized and unrealized gain (loss) 0.05 (1.02) 0.53 0.48 (0.21)
--------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.64 (0.46) 1.08 1.11 0.45
--------------------------------------------------------------------------------------------------------------
Gains From Repurchase of Treasury Stock 0.17 -- -- -- --
--------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.60) (0.54) (0.58) (0.66) (0.67)
Net realized gains -- (0.18) (0.17) (0.28) (0.16)
--------------------------------------------------------------------------------------------------------------
Total Distributions (0.60) (0.72) (0.75) (0.94) (0.83)
--------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.51 $11.30 $12.48 $12.15 $11.98
--------------------------------------------------------------------------------------------------------------
Total Return, Based on Market Value/(2)/ 5.21% (0.59)% (1.31)% 7.75% 7.35%
--------------------------------------------------------------------------------------------------------------
Total Return, Based on Net Asset Value/(2)/ 8.49% (3.29)% 9.57% 9.86% 4.01%
--------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $118 $127 $140 $137 $134
--------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(1)/ 0.90% 1.03% 1.10% 1.10% 1.09%
Net investment income 5.28 4.62 4.46 5.23 5.31
--------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 37% 27% 66% 97% 63%
--------------------------------------------------------------------------------------------------------------
Market Value, End of Year $9.938 $10.063 $10.813 $11.688 $11.750
==============================================================================================================
</TABLE>
/(1)/ The investment adviser and administrator waived a portion of their fees
for each of the years in the two-year period ended August 31, 2000. If
such fees were not waived, the per share decreases in net investment
income and the actual ratios of expenses to average net assets would have
been as follows:
Per share decreases in Expense ratios
net investment income without fee waivers
--------------------- -------------------
2000 $ 0.03 1.17%
1999 0.01 1.09
/(2)/ The total return assumes that dividends are reinvested in accordance with
the Fund's dividend reinvestment plan.
22
<PAGE>
Independent Auditors' Report
The Shareholders and Board of Directors of
Managed Municipals Portfolio II Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Managed Municipals Portfolio II Inc. as of
August 31, 2000, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the
five-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2000, by correspondence with the custodian. As
to securities sold but not yet delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Managed Municipals Portfolio II Inc. as of August 31, 2000, the results of its
operations for the year then ended, the change in its net assets for each of the
years in the two-year period then ended and financial highlights for each of the
years in the five-year period then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
October 15, 2000
23
<PAGE>
Quarterly Results of Operations
(unaudited)
<TABLE>
<CAPTION>
Net Realized Net Increase
and Unrealized (Decrease) in
Investment Net Investment Gain (Loss) on Net Assets From
Income Income Investments Operations
---------------------- ---------------------- ----------------------- ------------------------
Per Per Per Per
Quarter Ended Total Share Total Share Total Share Total Share
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
November 30,
1998 $ 1,919,936 $ 0.17 $ 1,605,790 $ 0.14 $ (355,751) $ (0.02) $ 1,250,039 $ 0.12
February 28,
1999 1,897,767 0.17 1,556,424 0.14 (1,135,437) (0.10) 420,987 0.04
May 31,
1999 1,916,457 0.17 1,545,491 0.14 (3,064,199) (0.28) (1,518,708) (0.14)
August 31,
1999 1,956,606 0.17 1,584,323 0.14 (7,006,948) (0.62) (5,422,625) (0.48)
November 30,
1999 1,886,025 0.17 1,543,056 0.14 (2,887,971) (0.26) (1,344,915) (0.12)
February 29,
2000 2,458,949 0.23 2,200,351 0.21 (2,979,232) (0.28) (778,881) (0.07)
May 31,
2000 1,765,854 0.17 1,542,448 0.15 (68,340) (0.01) 1,474,108 0.14
August 31,
2000 1,159,043 0.11 923,855 0.09 6,428,571 0.60 7,352,426 0.69
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Tax Information
(unaudited)
For Federal tax purposes the Fund hereby designates for the fiscal year ended
August 31, 2000:
* 99.72% of the dividends paid by the fund from net investment income as
tax exempt for regular Federal income tax purposes.
24
<PAGE>
Financial Data
(unaudited)
For a share of capital stock outstanding throughout each period:
NYSE Net Dividend
Record Payable Closing Asset Dividend Reinvestment
Date Date Price+ Value+ Paid Price
================================================================================
9/22/98 9/25/98 $ 11.313 $ 12.52 $ 0.049 $ 11.52
10/27/98 10/30/98 11.688 12.46 0.049 11.66
11/23/98 11/27/98 11.563 12.45 0.049 11.55
12/21/98* 12/24/98 11.250 12.28 0.177 11.24
1/26/99 1/29/99 11.125 12.32 0.049 11.10
2/23/99 2/26/99 10.875 12.25 0.049 10.93
3/23/99 3/26/99 10.563 12.15 0.049 10.67
4/27/99 4/30/99 10.375 12.12 0.049 10.41
5/25/99 5/28/99 10.188 11.96 0.049 10.40
6/22/99 6/25/99 10.563 11.61 0.050 10.51
7/27/99 7/30/99 9.875 11.60 0.050 9.98
8/24/99 8/27/99 9.875 11.25 0.050 10.00
9/21/99 9/24/99 9.625 11.22 0.050 9.69
10/26/99 10/29/99 9.438 10.88 0.050 9.56
11/22/99 11/26/99 9.563 11.08 0.050 9.26
12/27/99 12/30/99 9.063 10.91 0.050 9.07
1/25/00 1/28/00 9.438 10.79 0.050 9.52
2/22/00 2/25/00 9.438 10.86 0.050 9.49
3/28/00 3/31/00 9.188 11.15 0.050 9.34
4/25/00 4/28/00 9.313 11.11 0.050 9.34
5/23/00 5/26/00 9.125 10.81 0.050 9.26
6/27/00 6/30/00 9.563 11.17 0.050 9.66
7/25/00 7/28/00 9.563 11.31 0.050 9.78
8/22/00 8/25/00 9.875 11.46 0.050 9.96
================================================================================
+ As of record date.
* Capital gain distribution.
25
<PAGE>
Dividend Reinvestment Plan
(unaudited)
Under the Fund's Dividend Reinvestment Plan ("Plan"), a shareholder whose
shares of common stock are registered in his own name will have all
distributions from the Fund reinvested automatically by PFPC Global Fund
Services ("PFPC"), as purchasing agent under the Plan, unless the shareholder
elects to receive cash. Distributions with respect to shares registered in the
name of a broker-dealer or other nominee (that is, in street name) will be
reinvested by the broker or nominee in additional shares under the Plan, unless
the service is not provided by the broker or nominee or the shareholder elects
to receive distributions in cash. Investors who own common stock registered in
street name should consult their broker-dealers for details regarding
reinvestment. All distributions to shareholders who do not participate in the
Plan will be paid by check mailed directly to the record holder by or under the
direction of PFPC as dividend paying agent.
The number of shares of common stock distributed to participants in the
Plan in lieu of a cash dividend is determined in the following manner. When the
market price of the common stock is equal to or exceeds the net asset value per
share of the common stock on the determination date (generally, the record date
for the distribution), Plan participants will be issued shares of common stock
by the Fund at a price equal to the greater of net asset value determined as
described below under "Net Asset Value" or 95% of the market price of the common
stock.
If the market price of the common stock is less than the net asset value of
the common stock at the time of valuation (which is the close of business on the
determination date), or if the Fund declares a dividend or capital gains
distribution payable only in cash, PFPC will buy common stock in the open
market, on the AMEX or elsewhere, for the participants' accounts. If following
the commencement of the purchases and before PFPC has completed its purchases,
the market price exceeds the net asset value of the common stock as of the
valuation time, PFPC will attempt to terminate purchases in the open market and
cause the Fund to issue the remaining portion of the dividend or distribution in
shares at a price equal to the greater of (a) net asset value as of the
valuation time or (b) 95% of the then current market price. In this case, the
number of shares received by a Plan participant will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares. To the extent PFPC is unable to stop
open market purchases and cause the Fund to issue the remaining shares, the
average per share purchase price paid by PFPC may exceed the net asset value of
the common stock as of the valuation time, resulting in the acquisition of fewer
shares than if the dividend or capital gains distribution had been paid in
common stock issued by the Fund at such net asset value. PFPC will begin to
purchase common stock on the open market as soon as practicable after the
determination date for the
26
<PAGE>
Dividend Reinvestment Plan
(unaudited) (continued)
dividend or capital gains distribution, but in no event shall such purchases
continue later than 30 days after the payment date for such dividend or
distribution, or the record date for a succeeding dividend or distribution,
except when necessary to comply with applicable provisions of the federal
securities laws.
PFPC maintains all shareholder accounts in the Plan and furnishes written
confirmation of all transactions in each account, including information needed
by a shareholder for personal and tax records. The automatic reinvestment of
dividends and capital gains distributions will not relieve plan participants of
any income tax that may be payable on the dividends or capital gains
distributions. Common stock in the account of each Plan participant will be held
by PFPC in uncertificated form in the name of the Plan participant.
Plan participants are subject to no charge for reinvesting dividends and
capital gains distributions under the Plan. PFPC's fees for handling the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. No brokerage charges apply with respect to shares of common stock issued
directly by the Fund under the Plan. Each Plan participant will, however, bear a
proportionate share of any brokerage commissions actually incurred with respect
to any open market purchases made under the Plan.
Experience under the Plan may indicate that changes to it are desirable.
The Fund reserves the right to amend or terminate the Plan as applied to any
dividend or capital gains distribution paid subsequent to written notice of the
change sent to participants at least 30 days before the record date for the
dividend or capital gains distribution. The Plan also may be amended or
terminated by PFPC, with the Fund's prior written consent, on at least 30 days'
written notice to Plan participants. All correspondence concerning the Plan
should be directed by mail to PFPC Global Fund Services, P.O. Box 8030, Boston,
Massachusetts 02266-8030 or by telephone at 1-800-331-1710.
---------------------------
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that from time to time the Fund may purchase
shares of its common stock in the open market.
27
<PAGE>
Managed Municipals
Portfolio II Inc.
Directors
Allan J. Bloostein
Martin Brody
Dwight B. Crane
Robert A. Frankel
William R. Hutchinson
Heath B. McLendon, Chairman
Charles F. Barber, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Joseph P. Deane
Vice President and
Investment Officer
David Fare
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSB Citi Fund Management LLC
388 Greenwich Street
New York, New York 10013
Transfer Agent
PFPC Global Fund Services
P.O. Box 8030
Boston, Massachusetts 02266-8030
Custodian
PFPC Trust Company
8800 Tinicom Blvd.
Suite 220
Philadelphia, Pennsylvania 19153
28
<PAGE>
This report is intended only for shareholders of the
Managed Municipals Portfolio II Inc.
It is not a Prospectus, circular or representation
intended for use in the purchase or sale of shares of
the Fund or of any securities mentioned in the report.
FD0775 10/00
